What is Crypto?
Cryptocurrency, often shortened to “Crypto” is a type of decentralised virtual currency, secured using cryptography which allows for secure transactions without the need for a central regulating authority.
In language that a regular person can understand, crypto is a type of digital currency that doesn’t belong to any country and which isn’t controlled by traditional financial institutions.
It’s unlikely that cryptocurrency will replace pound sterling when you pay for groceries at the shop any time soon, however, some well-known companies do accept crypto as a method of payment (or at least they do when buying gift cards), including ASDA, John Lewis, Currys PC World and Pizza Express.
While Bitcoin (BTC) is the most commonly known type of cryptocurrency, there are others that you may have heard of, including Ethereum (ETH), Tether (USDT), and Binance Coin (BNB).
What is Crypto Trading?
Much like traditional stock and foreign exchange (also known as forex or FX) markets, there are also exchange services dedicated to trading cryptocurrencies. The idea behind these markets is that you invest in a cryptocurrency in the hopes that the price eventually rises. If the price rises and you can sell, then you have made a profit. If the price falls, you have lost money.
It’s essential to remember that most crypto assets are unprotected by financial bodies like the FCA (Financial Conduct Authority) or the FSCS (Financial Services Compensation Scheme) and as such, you have fewer options in the event of theft or fraud.
Is gambling on crypto riskier than stocks?
Each type of cryptocurrency is different, but they all carry the inherent risk that the price may drop at any point – similar to regular stock trading.
Some cryptocurrencies like – Tether – are backed by traditional fiat currencies like the Euro, British Pound Sterling, or the US Dollar, which means that while the value is unlikely to skyrocket, it should stay roughly stable. These types of crypto assets are conveniently known as stablecoins. More volatile crypto assets may offer a greater chance of profit, but they also risk a greater chance of crashing and becoming essentially worthless in a way that few traditional trading assets can. Because of this, it could be argued that crypto trading is far closer to gambling than traditional stock or forex trading.
A key difference between crypto trading and gambling, however, is that gambling is highly regulated, with laws and protections in place to prevent people from easily causing irrevocable damage to their finances. Crypto trading, on the other hand, is unregulated, almost always unprotected, and untraceable. Due to the nature of crypto, it can be difficult to trace stolen assets and even more difficult to retrieve them in the event of a scam or fraud.
Do people lose money when gambling on crypto?
Yes; the short answer is that many people do lose money trading crypto.
Like any investment, cryptocurrency trading has the potential to lose money, just as it can gain money. Even seasoned traders can lose money, as the market is highly volatile. Comparing cryptocurrency trading to gambling once again, it is only profitable if one person “wins” the money that somebody else has lost.
Other than the inherent risk involved with trading, investing in crypto can also be incredibly risky given the huge number of different scams involved. Last year alone, around $4.7 billion was lost when one of the largest crypto lenders, Celsius, filed for bankruptcy, following a major crash of two other crypto coins – Terra and Luna. Addressing the loss, US regulators compared Celsius to a Ponzi scheme.
On top of the volatility associated with each cryptocurrency, investors should also be wary of crypto investment scams used by fraudsters to trick victims into parting with their money in the hopes of a payday.